IRS Faces Backlash Over New Crypto Reporting Rule Targeting Decentralized Platforms

The United States Internal Revenue Service (IRS) is under fire for its recently finalized regulations requiring decentralized exchanges (DeFi) to adhere to the same reporting standards as traditional brokers. The rule, set to take effect in 2027, mandates that front-end DeFi platforms disclose gross proceeds from digital asset sales and report user transaction details.

Industry Leaders Voice Legal Concerns

Crypto executives and legal experts, however, are skeptical about the rule’s longevity. Uniswap’s Chief Legal Officer, Katherine Minarik, voiced strong opposition, noting the lack of a “limiting principle” in the IRS’s interpretation. “The IRS appears to classify DeFi technology as brokers simply for being involved in part of a transaction,” Minarik stated in a Dec. 27 post on X (formerly Twitter), urging the industry to challenge the regulation.

Uniswap CEO Hayden Adams also echoed similar concerns, expressing hope that the rule will be overturned under the Congressional Review Act. Even if it passes this legislative hurdle, Adams is optimistic that it won’t withstand legal challenges.

Compliance Burdens and Industry Pushback

The implications of the IRS’s rule are far-reaching, with compliance costs expected to weigh heavily on DeFi platforms. Robin Singh, CEO of crypto tax platform Koinly, explained that decentralized platforms lack the centralized structures required for traditional reporting. This fundamental difference poses major operational and technical hurdles.

Bill Hughes, a lawyer at blockchain firm Consensys, criticized the regulation as “all cost, no benefit” from a revenue perspective. Hughes noted that the rule’s scope, which includes tracking global users and reporting on transactions involving stablecoins and non-fungible tokens (NFTs), places an undue burden on DeFi platforms.

Hughes further criticized the timing of the announcement, describing it as a calculated move by the outgoing administration to avoid scrutiny. He also pointed out that the rule is likely to face Congressional review, where lawmakers could block its implementation.

As DeFi continues to grow, the resolution of this conflict could set a significant precedent for how regulators interact with emerging blockchain innovations.